Upbeat Centro plans more asset sales

CENTRO Retail Australia has moved back into contention as an investment-grade real estate investment trust with its inclusion in the top 100 index and a more balanced share register.

By InvestSMART · 30 May 2012

By InvestSMART ·
30 May 2012

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CENTRO Retail Australia has moved back into contention as an investment-grade real estate investment trust with its inclusion in the top 100 index and a more balanced share register.

After struggling to keep afloat over the past four years, the retail REIT now has less than 40 per cent of its register tied up with short-term, volatile hedge funds and a sector-standard gearing rate of about

26 per cent.

Its next hurdle is to improve its credit rating through the restructure of debt from further asset sales and cost controls.

The more stable register also makes the group less of a takeover target as investors are now long-term institutional and superannuation funds.

Jason Weate, an analyst at Deutsche Bank, said with the gearing guidance of about 26 per cent, Centro was well placed to access debt capital markets by around the end of calendar 2012 and/or restructure its core lending facility of about $1.3 billion.

Armed with $690.4 million in cash from the sale of a half share in three key assets to the Perth-base Perron Group, Centro can now also repay its $200 million liability from the long-running shareholder class action.

Under that deal Centro sold a 50 per cent interest in the shopping centres Galleria in Perth, The Glen shopping centre and its head office in Melbourne, and Colonnades in Adelaide.

Once debt is repaid and the asset sales completed, Centro's management intends to look at expansion through acquisitions and new developments, particularly in Western Australia.

In an investor update released yesterday, the group's chief executive, Steven Sewell, said Centro was to be included in the MSCI this week , which followed its re-entry to the S&P/ASX 100 Index, S&P/ASX 200 Index and S&P/ASX 200 REIT Index in March this year.

He confirmed Centro was on target to distribute 6.4? per security for the year to June 30.

Mr Sewell said Centro was continuing to gain more long-term REIT investors.

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Frequently Asked Questions about this Article…

What recent asset sales has Centro Retail Australia completed and who bought them?

Centro sold a 50% interest in three key shopping centres and its Melbourne head office to the Perth-based Perron Group, including Galleria in Perth, The Glen shopping centre and the head office in Melbourne, and Colonnades in Adelaide.

How much cash did Centro raise from the asset sales and how will it be used?

Centro raised $690.4 million from the sale of the half-share in those assets, and management says it can use those proceeds to repay debt, including a $200 million liability from a long-running shareholder class action.

What is Centro’s current gearing level and why does that matter for investors?

Centro is guiding to a sector-standard gearing rate of about 26 per cent; that lower gearing helps improve access to debt capital markets and supports efforts to restructure its core lending facility of about $1.3 billion.

How has Centro’s shareholder register changed and what does that mean for takeover risk?

Centro now has less than 40% of its register tied up with short-term, volatile hedge funds and has more long-term institutional and superannuation investors, which makes the group less of a takeover target.

What are Centro’s next steps for improving its credit rating and debt position?

Centro’s plan is to improve its credit rating by repaying debt and restructuring borrowings through further asset sales and cost controls, with the aim of accessing debt capital markets by around the end of calendar 2012 and/or restructuring its core $1.3 billion lending facility.

Will Centro return capital to investors and what distribution are they targeting?

Centro’s management confirmed it was on target to distribute 6.4 per security for the year to June 30, according to the investor update referenced in the article.

Has Centro been included in major market indices and why is that important?

Yes — Centro re-entered the S&P/ASX 100, S&P/ASX 200 and S&P/ASX 200 REIT Index in March and was set for inclusion in the MSCI index; index inclusion can attract long-term institutional investment and improve liquidity.

What growth plans does Centro have once its balance sheet is stabilised?

Once debt is repaid and the asset sales are completed, Centro’s management intends to pursue expansion through acquisitions and new developments, with particular interest in opportunities in Western Australia.